Coinbase warns users could lose their crypto holdings if company goes bankrupt(businessinsider.com)
businessinsider.com
Coinbase warns users could lose their crypto holdings if company goes bankrupt
https://www.businessinsider.com/coinbase-warning-users-could-lose-crypto-bankruptcy-earnings-2022-5
35 comments
A whole bunch of people could learn the hard way the difference between "custodial wallets" and "your own wallet" very, very quickly. I've been telling friends who are into BTC to get their holdings off of Coinbase and into their own wallet (or cash out to fiat and disconnect their bank account from Coinbase -- I have no idea if claw-back is a thing here but why wait to find out?). Personally I moved holdings to Blue, Muun, and Electrum... I'm sure there are other fantastic options as well but I favor those that allow moving BTC on the Lightning network.
I’ve mentioned this several times before but the risk calculation here is balancing between $EXCHANGE preventing withdrawals or forgetting your seed phrase, having your wallet hacked, or some other user error.
It would be interesting to somehow compare funds lost in exchange hacks/insolvency/etc and funds lost forever due to users attempting to manage their own wallets.
In both cases you’re risking losing everything.
It would be interesting to somehow compare funds lost in exchange hacks/insolvency/etc and funds lost forever due to users attempting to manage their own wallets.
In both cases you’re risking losing everything.
Well if you do half and half, you're only risking losing half at a time.
> I've been telling friends who are into BTC to get their holdings off of Coinbase and into their own wallet
I have absolutely no idea how to even do that. :( Is there a safe way to do it?
I have absolutely no idea how to even do that. :( Is there a safe way to do it?
I just cashed my holdings out and transferred the cash to my bank. I'm done with crypto for the foreseeable future.
Selling at the bottom is...difficult to empathize with.
> "Because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors," the company said.
A similar discussion from when their earnings report came out last month: https://news.ycombinator.com/item?id=31338355
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No different than traditional banks, which have barely enough insurance to cover approximately 1% of deposits.
Are we just pretending the FDIC doesn't exist?
From the article:
> It's a different scenario from traditional investments. Many bank accounts, including checking and savings, are insured by the Federal Deposit Insurance Corp. for up to $250,000 per account if the bank goes under, while the Securities Investor Protection Corp. helps if a broker or dealer goes bankrupt.
From the article:
> It's a different scenario from traditional investments. Many bank accounts, including checking and savings, are insured by the Federal Deposit Insurance Corp. for up to $250,000 per account if the bank goes under, while the Securities Investor Protection Corp. helps if a broker or dealer goes bankrupt.
Are you pretending FDIC covers more than 1% of all deposits? If so, please refer to the Fed website for a sobering realization.
> Are you pretending FDIC covers more than 1% of all deposits?
It doesn't have to cover all of deposits, it has to cover failures. The chances of every bank in the country simultaneously collapsing is slim (and you've got bigger problems at that point than your balance). No one's lost a penny worth of FDIC-insured funds since 1933.
It doesn't have to cover all of deposits, it has to cover failures. The chances of every bank in the country simultaneously collapsing is slim (and you've got bigger problems at that point than your balance). No one's lost a penny worth of FDIC-insured funds since 1933.
Though the WAMU failure in 2008 nearly broke the FDIC. You know the cartoon of the snake eating the elephant? It was like that.
Samll banks, on the other hand, fail every week and the FDIC cleans them up so fast no one even notices.
Samll banks, on the other hand, fail every week and the FDIC cleans them up so fast no one even notices.
So basically a massive worst case financial crisis led to something almost, but not actually, failing.
Sounds like the system worked extremely well.
Sounds like the system worked extremely well.
I feel the same about the Trump presidency. He and his cohorts attempted to subvert the system, pen testers if you will, but the system responded and survived. In the end, we should thank Trump for helping to improve the American system of rule of law and governance.
The jury is out for a while on whether the result was "survived" or "gave a better playbook for next time". Those on the left would tend to argue the lack of consequences thus far encourages a more competent attempt.
I'm confident that the people in the system have woken up to the fact that a large scale attack can come from within the system, which was previously unthinkable, and adjustments will be made to help prevent it from occurring again.
I really wish I saw what you saw. Instead, I see utter complacency.
The WAMU failure also serves as a pretty good example of the other levers available in traditional banking regulation (and the pressure on the government to find a fix) that Coinbase is unlikely to be able to avail themselves of.
The WAMU bankruptcy was difficult for the FDIC to manage, and there was no ready buyer to take the remains. But if there had been no FDIC to manage it, the result would have been catastrophic failure. Like Lehman, but with more retail banking customers getting wiped out.
Congress would have given the FDIC a blank check if they needed.
> Congress would have given the FDIC a blank check if they needed
Congress already did this. The FDIC reserve fund is mostly an accounting and accountability thing. The act creating the FDIC gives it the explicit backing of the United States’ “full faith and credit.”
Congress already did this. The FDIC reserve fund is mostly an accounting and accountability thing. The act creating the FDIC gives it the explicit backing of the United States’ “full faith and credit.”
It's amazing how quickly we forget history, apparently ignoring the bank crisis of the 1980s and complete failure of FSLIC. Multiple banks collapsed costing tax payers billions of dollars and the institution the government created to insure deposits failed spectacularly.
It's worth pointing out that the collapse of the S&L industry is widely recognized as being largely a result of loosening of regulations in the 1980s.
https://www.thebalance.com/savings-and-loans-crisis-causes-c...
Leaving aside the question of whether it's advisable to have the government in this business in the first place, I'd say we should at least agree that, if it's going to happen, financial institutions that benefit from these programs should be required to be absolutely allergic to risk. Letting firms make questionable loans and pocket the profits while passing the risk on to taxpayers has, as far as I'm aware, never worked out well in practice.
https://www.thebalance.com/savings-and-loans-crisis-causes-c...
Leaving aside the question of whether it's advisable to have the government in this business in the first place, I'd say we should at least agree that, if it's going to happen, financial institutions that benefit from these programs should be required to be absolutely allergic to risk. Letting firms make questionable loans and pocket the profits while passing the risk on to taxpayers has, as far as I'm aware, never worked out well in practice.
And the government stepped in to meet obligations to make depositors whole. The S&L industry collapsed, the folks with $100k of retirement savings in the bank did not. FSLIC got rolled into FDIC for a large insurance risk pool, too.
They're not going to do that for Coinbase.
They're not going to do that for Coinbase.
> and complete failure of FSLIC. Multiple banks
The S&L crisis involved S&Ls [1]. Not banks [2]. That was the problem. People making up non-bank “banks” and then blowing them up in the exact way the banking regulations they were looking to escape were written to avoid. Sound familiar?
S&Ls were covered by FSLIC. It differs from the FDIC in an important way: it was not backed by the “full faith and credit” of the U.S. That makes it more like Sallie Mae than the FDIC. (Indeed, it comes out of
[1] https://en.m.wikipedia.org/wiki/Savings_and_loan_association
[2] Banks also failed. But they were resolved in an orderly way by the FDIC. Nothing there threatened to go systemic. https://www.fdic.gov/bank/historical/history/3_85.pdf
The S&L crisis involved S&Ls [1]. Not banks [2]. That was the problem. People making up non-bank “banks” and then blowing them up in the exact way the banking regulations they were looking to escape were written to avoid. Sound familiar?
S&Ls were covered by FSLIC. It differs from the FDIC in an important way: it was not backed by the “full faith and credit” of the U.S. That makes it more like Sallie Mae than the FDIC. (Indeed, it comes out of
[1] https://en.m.wikipedia.org/wiki/Savings_and_loan_association
[2] Banks also failed. But they were resolved in an orderly way by the FDIC. Nothing there threatened to go systemic. https://www.fdic.gov/bank/historical/history/3_85.pdf
The difference is that if you're putting more than $250k into a bank account the bank pulls you aside and discusses proper financial planning and investment. Or you're smart enough to know already what you're getting into.
The FDIC protects retail investors, so even if a banks holdings are not 100% covered, the uncovered portions are for non-retail customers and other holdings, not your savings account.
The FDIC protects retail investors, so even if a banks holdings are not 100% covered, the uncovered portions are for non-retail customers and other holdings, not your savings account.
Well it's $250k per depositor per bank, and you can have single and joint accounts which doubles it. You can have more than a million that is FDIC insured, and that's good enough for most people, and if you lose your money beyond that then to be honest people don't need more than a million to still live a comfortable life that you can "restart" from.
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